Varun Beverages Ltd. share price target

Although Varun Beverages Limited (VBL) performance in Q2CY20 was below our estimates on topline/bottomline the commentary on demand recovery and market share gains was positive. Sales volumes in June '20 was +75% YoY with July much better than June.

Valuation and Risks: Since its listing in Nov 2016, VBL has historically traded consistently within its avg1 year forward PE of 47x. Given the pandemic and economic downturn, we factor in the risk regarding longevity of the economic troubles and value the stock at a discount of ~ 10% (40x) from its 1 year forward PE since listing on CY21E EPS of Rs. 20.8 and recommend BUY'.

Varun Beverage management indicated that the business is seeing good recovery from the lows noticed during the last week of March when the lockdown hit the nation. We note that VBLs utilization levels have more than doubled MoM in May to 65% levels from 30% recorded in April 2020.

Although Varun Beverages Limited (VBL) performance in Q1CY20 was better than our estimates on topline/bottomline we note that Q2CY20 (~40% sales) could be severely impacted given the rapidly evolving situation on ground and sharp impact of 10 days lockdown on organic volumes which declined by 13.7%

Varun Beverages (VBL) reported 23.3% revenue growth in Q1CY20E led by 26.2% volume growth. The volume growth is largely attributable to consolidation of south & west geographies after acquisition in 2019. However, on a like-to-like basis, the company saw 9.3% volume decline in the quarter. India business saw 13.7% volume decline largely due to loss of sales in last 10 days of March. Despite January-February seeing double digit volume growth, 31% decline in March severely impacted the quarter. Gross margins improved 280 bps largely due to a sharp decline in PET chip prices....

We are initiating coverage on Varun Beverages Limited (VBL) with a BUY recommendation and a Target Price of Rs. 804, which implies 29% upside from the current levels. Looking beyond the lockdown period caused byCOVID-19, VBL to witness a relatively faster recovery in earnings growth

Cash flows from acquired territories in FY21E to reduce debt VBL's domestic sales volumes in Q4CY19 were at 62 mn cases with organic growth of 10% YoY on account of increase in distribution in under penetrated rural regions. For CY19, total sales volumes were up 44.9% YoY to 493 million cases compared to 340 million cases in 2018. Overall organic volume growth for CY19 was at 17.2% supported by robust performance in India (organic growth 13.1%) as well as international territories (organic growth 34%). We expect revenue CAGR of 12% in CY19-21E. We believe...

Healthy business growth in domestic, international markets VBL's domestic sales volumes in Q3CY19 were at 98 million (mn) cases with organic growth of 17.5% YoY on account of increase in distribution in under penetrated rural regions. Its international volumes were at 26 mn with organic growth of 27% driven by double digit growth in all overseas operations expect Zambia. Volume contribution from acquired territories were at 32 mn cases. With the recent acquisition, capacity utilisation for VBL was at 60% against erstwhile 70%, which gives tremendous scope for...

Sowing for Future Thirst:VBLs optimistic approach of continuous expansion in highly under-penetrated areas has created its presence in 5 overseas territories

Varun Beverages Ltd. declared its Q2CY19 results recently. Net Revenues grew by 37% YoY to `2811crs. led by robust volume growth of 43.3%. EBITDA for Q2CY19 grew by 37% on a YoY basis to `788crs. Margins expanded by 10 bps to 28%. PAT for Q2CY19 increased by 32% YoY to `405crs. This was on the back of robust volume growth in international operations. VBL now account for 80%+ of PepsiCo India's beverage sales volumes in India...